LONDON, March 31 (Reuters) - Britain's telecoms regulator said on Friday it plans to cut the wholesale price that network operator BT can charge other service providers for "superfast" broadband connections with download speeds of up to 40 Mbits per second, to encourage investment in faster services.

Ofcom said it expected the lower charges to be passed on to residential customers, increasing competition in the superfast retail market.

Wholesale pricing will remain unregulated for BT Openreach's ultrafast full-fibre and turbo-charged G.Fast copper-based services in order to encourage companies to construct their own rival networks.

The regulator said on Friday it intended to gradually reduce Openreach's charges for its 40 Mbit/s broadband package from today's level of 88.80 pounds per year to 66.28 pounds next year, 57 pounds the following year and 52.77 pounds in 2020/21.

"Our plans are designed to encourage long-term investment in future ultrafast, full-fibre networks, while promoting competition and protecting consumers from high prices," said Ofcom's Jonathan Oxley.

Ofcom already caps wholesale prices for Openreach's slower copper-based broadband services, which average 8.4 Mbits/s, but did not hitherto control prices for superfast broadband, which averages 33.4 Mbits/s.

It said prices for ultrafast services provided by full-fibre to the premises, which is currently available to only about 2 percent of British properties, and BT's G.Fast service, would not be capped.

Ofcom also proposed tougher service standards for Openreach, in line with the objectives that underpinned its deal that allowed BT to retain ownership of the unit earlier this month.

But an Openreach spokesman said that on first view the proposals did not appear to incentivise more investment in 'full-fibre' networks.

"The UK needs a regulatory framework that encourages investment and rewards risk," he said.

"Building digital infrastructure is very expensive with long payback periods and we won't recover our more than 3 billion pounds investment until after this charge control period."

Shares in BT rose 0.5 percent to 318.6 pence, as Citi said the proposals were broadly positive for the company.

"The eventual impact on BT will depend on the final decisions on regulated prices, the cost of the higher service standards and the extent to which wholesale pricing influences retail price points and so stimulates further take-up," the bank's analysts said.

The British government, which has put fibre at the centre of its digital strategy, said the proposals were good news for consumers, businesses and the country.

"They will help drive the commercial investment we want to see in full fibre networks, as well as lowering the cost of superfast broadband and improving Openreach's customer service standards," Digital Minister Matt Hancock said. (Editing by Kate Holton, Greg Mahlich)